13 August 2008

Kern County Speculators

By popular demand (DW, LC and TP), I bring you this story of how the Kern County Water Agency bought water cheaply in the winter ($28/AF) and then sold the water for a lot in the summer ($170/AF) -- to the same seller and buyer, i.e., the State of California. The tragedy is not that Kern "used" its water bank to store the water (there's some evidence that it did not), nor that KCWA made about $100 million on the deal.

The tragedy is that KCWA's winter purchases hurt fish in the Delta, and that its summer sales were meant to help those same fish. Who's to blame? I am not going to point the finger at clever traders; instead, I blame incompetent (or beholden) bureaucrats. Here's more:

Since 1995, the Kern County Water Agency bought 1.2 million acre-feet of water under Article 21, making it the biggest purchaser of that category of water, according to a tally of annual purchase records compiled by the Times. The next biggest purchaser was the Metropolitan Water District of Southern California, which bought about 830,000 acre-feet.

Those numbers are higher than environmental regulators expected, and the Department of Water Resources in recent years delivered far more Article 21 water than was approved in the endangered species permit that was meant to protect Delta smelt.

The U.S. Fish and Wildlife Service permit called for 168,000 acre-feet of Article 21 deliveries in an average year. In 2005, state water managers delivered a record 730,000 acre-feet in a year that was only slightly wetter than average.

[snip]

"A lot of this was a cost saving mechanism," said Jerry Johns, deputy director of the Department of Water Resources. "They got smarter about how to request this stuff, rather than us changing the rules. These guys are not stupid."

[snip]

"There wasn't a great focus on how much it was because it was supposed to be infrequent," said Fish and Wildlife Service spokesman Al Donner.

Kudos to Mike Taugher at the Contra Costa Times for an excellent story. Read the whole thing.

Bottom Line: These regulatory "solutions" are not working. Set-aside environmental flows and let water buyers and sellers compete over the remaining water. Otherwise, we're going to get more dead fish, bigger tax bills and bigger pay packets for the water traders of Kern.